Cardiovascular Systems fourth-quarter revenue increases 15% to $18.0 million

Cardiovascular Systems, Inc.Aug 11 2010

Cardiovascular Systems, Inc. (Nasdaq: CSII):

“Physicians who have used the Diamondback Predator 360° have found the new system gives them superior performance and outcomes.”

• Key financial results improved in fiscal 2010 fourth quarter over prior-year quarter
  • Revenue increased 15 percent to $18.0 million
  • Revenue from reorders grew to 93 percent of total revenue from 89 percent
  • Gross margin rose to 77 percent from 73 percent
  • Adjusted EBITDA loss improved 58 percent to $(1.5) million
  • Net loss improved 22 percent to $(4.4) million
• Second-generation product, the Diamondback Predator 360°™ PAD System, was launched
• Prospective clinical trials were advanced
  • ORBIT II coronary trial began patient enrollment
  • CALCIUM 360° and COMPLIANCE 360° studies completed patient enrollment

Cardiovascular Systems, Inc. (CSI) (Nasdaq: CSII), a medical device company developing and commercializing innovative interventional treatment systems for vascular disease, today reported financial results for its fiscal fourth quarter and year ended June 30, 2010.

CSI's revenue in the fourth quarter rose to $18.0 million, a 15 percent gain over revenue of $15.7 million in the fourth quarter of last fiscal year. Adjusted EBITDA, calculated as loss from operations, less depreciation and amortization and stock-based compensation expense, improved by 58 percent to a loss of $(1.5) million, as a result of stronger revenue and gross margins, with limited operating expense growth.

David L. Martin, CSI president and chief executive officer, said, "Our focus on customer education to drive adoption of our Diamondback 360^® PAD System has been successful, resulting in significant revenue growth in the last two quarters of fiscal 2010. As a result, we enter fiscal 2011 with a strong customer base. We also made substantial progress toward profitability, greatly reducing our net and adjusted EBITDA losses. These accomplishments occurred while we made progress on key growth initiatives, including launch of our ORBIT II trial for a coronary application - a major new potential market for the company, and introduction of CSI's second-generation product, the Diamondback Predator 360°™ PAD System."

Net loss was $(4.4) million for the quarter, a 22-percent improvement from $(5.6) million in the fourth quarter of last year and a 32-percent reduction from the third quarter of fiscal 2010. Net loss per diluted common share was $(0.29) in the fiscal 2010 fourth quarter, compared to $(0.40) per diluted common share a year earlier.

Revenue generated from customer reorders rose to 93 percent of total revenue for the fiscal 2010 fourth quarter, up from 89 percent in last year's fourth quarter, reflecting CSI's emphasis on increasing usage in existing accounts. Gross margin rose to 77 percent from 73 percent in the same period last year, due to product cost reductions, manufacturing efficiencies and shipment of fewer controller units. Operating expenses increased 7 percent to $18.2 million, a result of expanding the sales force and education programs earlier in fiscal 2010.

Fiscal Year 2010 Results

Financial results for fiscal year 2010 also improved over the prior year. Revenue increased 15 percent to $64.8 million. Gross margin rose to 77 percent from 71 percent, while operating expenses declined two percent. The net loss decreased 25 percent to $(23.9) million. Fiscal 2009 benefited from $4.1 million of income from valuation changes related to preferred stock warrants and auction rate securities. Excluding this 2009 income, net loss improved by 34 percent in 2010. Adjusted EBITDA improved by 51 percent to a loss of $(13.2) million. The net loss available to common shareholders increased to $(23.9) million from $(9.1) million last year, which was favorably affected by a $22.8 million valuation change in redeemable convertible preferred stock. Net loss per diluted common share was $(1.62) in fiscal 2010, compared to $(1.13) last year. Weighted average common shares outstanding increased by 6.7 million shares, primarily resulting from completion of the reverse merger in fiscal 2009.

OPERATING HIGHLIGHTS

Second Generation PAD System Introduced

CSI recently launched the Diamondback Predator 360° PAD™ System, its second generation product - with improved crowns and shafts - that uses the same mechanism of action as the Diamondback 360°. With the Diamondback Predator 360°, physicians can remove a high percentage of plaque in less time. A reduced profile with increased weight allows for easy advancement through difficult occlusions.

"At CSI, we listen to physicians' feedback and respond with technological innovation that meets their needs," commented Martin. "Physicians who have used the Diamondback Predator 360° have found the new system gives them superior performance and outcomes." The product has completed an extensive limited release and is now available for broad commercialization.

Clinical Trial for Coronary Application Advanced

In April, CSI received FDA unconditional Investigational Device Exemption (IDE) approval to evaluate the safety and effectiveness of the Diamondback 360° System to treat calcified coronary lesions. Patient enrollment in the ORBIT II pivotal clinical trial is now under way. ORBIT II is expected to enroll 429 patients, subject to FDA review of data from the first 50 cases.

Martin added, "Our unique orbital technology has a strong track record in treating small vessels with calcified lesions and may be well suited for a coronary application. The ability to remove hard plaque prior to stent placement could spare many patients from highly invasive surgery and improve long-term outcomes. Our ORBIT I feasibility trial provided strong safety and efficacy data, and we are confident about repeating those outcomes in ORBIT II."

PAD Studies Support Evidence-Based Medicine

In the fourth quarter, CSI completed patient enrollment in the COMPLIANCE 360° and CALCIUM 360° clinical trials, which are evaluating the use of the Diamondback 360° in treating PAD lesions above and behind/below the knee, respectively. Both studies are prospective, randomized clinical trials, enrolling 50 patients at up to 10 sites, with six-month and 12-month follow-up.

Martin noted, "Safety and outcomes data are the foundation of evidence-based medicine and priority factors in physicians' treatment decisions. The scope of our PAD clinical trial program is unprecedented in this sector, and we now have data on more than 1,300 patients in 11 clinical trials. We are committed to obtaining scientifically sound, clinically useful data that gives physicians the information they need to optimize patient outcomes and raise the standard of care for PAD patients."

Fiscal 2011 First-Quarter Outlook

For the fiscal 2011 first quarter ending September 30, 2010, CSI management anticipates:

• Revenue in the range of $17.0 million to $18.0 million, or growth of 12 percent to 18 percent over the first quarter of fiscal 2010. The revenue range is affected by seasonally lower procedure volume during the summer months;
• Gross profit as a percentage of revenue at approximately the same level as the fiscal 2010 fourth quarter;
• A slight rise in operating expenses from the fiscal 2010 fourth quarter, due to temporary increases in research and development for an electric version of the Diamondback 360° system and for the coronary initiative;
• Net loss in the range of $(4.7) million to $(5.3) million, or loss per diluted share ranging from $(0.31) to $(0.34), assuming 15.4 million average shares outstanding; and
• Adjusted EBITDA loss between $(2.2) million and $(2.8) million.

Management continues to balance growth with progress toward profitability and positive cash flow and expects the net loss and adjusted EBITDA to improve as revenue increases.